ohio tax refrom: year 2 in review

Ohio tax reform:Year 2 in reviewLowering the burden for families and businesses.Raising the standard of living for all Ohioans.

A message from Ohio Business Roundtable Chairman Michael G. Morris

Three years ago, Ohio’s business and elected leaders joined hands to collaborate on themost sweeping tax reform in our state’s history. The vision was simple but compelling — overhaul the tax code so Ohio companies could become more competitive globally,invest more in our state and, thereby, fuel our economic growth.

In the second year of a five-year rollout, it is rewarding to see accelerating businessinvestment and an ever strengthening spirit of accomplishment create job growth in Ohio. Indeed, for the second straight year, Site Selection magazine has awardedOhio the Governor’s Cup for the most new and expanded large-scale capital projects —beating out Illinois, Tennessee, North Carolina and Texas for the top spot.

All evidence supports that Ohio’s tax reform is working as planned. Elimination of taxes on capital investment, inventory, sales of goods and services to customers outside ofOhio, as well as corporate income and franchise taxes, combine to help make Ohio the ideal location to build a successful global business. In addition, reducing personalincome tax by 21% helps Ohio citizens afford an even more fulfilling life.

In Ohio, collaboration between private and public sector leaders is the approach wetake to continually improve our business climate and standard of living — leading toeducation reform, tort reform and then tax reform. And we are now collaborating tostrengthen math and science education, further improve our higher education systemand make college more affordable, while we also tackle one of the defining and mostcomplex issues of our time — access, quality and cost of health care.

The Ohio Business Roundtable is proud to be a part of this collaboration, and we sincerely thank Governor Strickland, Lieutenant Governor Fisher, Senate PresidentHarris, House Speaker Husted and their colleagues in the General Assembly for theirleadership in navigating Ohio’s ship of state across these turbulent economic waters.

We applaud these leaders for their continued bipartisan commitment to the tax reformsenacted three years ago. It is this commitment to working together that helps set Ohioapart from other states. It is a key reason why the CEOs of Ohio’s major businesseswho are our members are proud to call Ohio, “home.”

As BRT Chairman, I have the privilege of reporting on the results and impact of workstarted by my predecessor chairs. The progress outlined in this brief booklet would nothave been possible without the steady hand of John Barrett, who personally led ourtax reform effort. I invite you to read about its success and encourage your renewedcommitment to work together on behalf of the citizens of our great state.

30 June 2008

1

“Ohio has won the (Governor’s) cup two years in a row. Not by opinion polls or historicaldatabases, but rather by objective, tough-to-convince, hard-nosed business executiveswho don’t like to make mistakes when it comes to large capital investments. Theseexecutives are seeing a fundamentally improved Ohio business climate. In 2005, Ohioenacted the most sweeping tax reform in 75 years; reform that made Ohio’s new capitalinvestment tax rates the lowest in the Midwest. These reforms are designed to makeOhio companies even more competitive in the global economy and will ensure thatOhio’s economy continues to be robust and vibrant throughout the 21st century.”

Governor Ted Strickland and Lieutenant Governor Lee FisherLetter to the Editor of the Wall Street Journal, March 7, 2008

“We reformed our state tax code to reflect positive changes in the economy and to boost the state’s ability to attract new companies andgood-paying, high-tech jobs to Ohio.As we continue to implement thesechanges, employers throughout thenation are already taking notice of our state’s more favorable tax climate,and we are becoming much morecompetitive in economic development.Through tax reform, we also providedfor real tax relief to families, approvinga 21 percent across-the-board incometax cut. This has allowed families tokeep more of their hard-earned dollarsand empowered them to spend it on their own priorities. In the yearsahead, we must ensure this progresscontinues and that our tax reformplan is fully phased in.”

Ohio Senate President Bill Harris

“The transformation and revitalization of Ohio’seconomy is vital to our success as a state. We laid the groundwork for that success withour historic tax reform package — providingOhioans with a 21 percent across-the-boardtax cut and moving to a lower rate, broaderbased tax for businesses, making Ohio a moreattractive place for people to earn, invest, learn and live. Today, we are building on thatfoundation by investing even more in our mostvalued resource — our people. We have devel-oped programs of educational excellence,invested in our children by focusing on the skill sets of tomorrow in science, technology,engineering and mathematics, and we areestablishing partnerships with business to pairOhio graduates with jobs right here in Ohio.Our investments today will help Ohioans gainthe skills they need to compete tomorrow —not just with those from Indiana, but thosefrom Indonesia and India as well.”

Ohio House Speaker Jon Husted

Tax reform means capital investment, an improvedbusiness climate and a growing economy for Ohio

The view from Ohio’s leaders

2

What businessleaders think

With our wealth of

riches and assets as a

state, we can now say

that Ohio also has one

of the most business-

friendly tax codes

in the country. Tax

reform is now a reality

in Ohio because the

business community

worked hard with our

elected state leaders

— not simply to level

the competitive

‘playing field’ but

to move Ohio to the

head of the pack.”

John BarrettImmediate Past ChairmanOhio Business

Roundtable

Chairman and CEOWestern & Southern

Financial GroupCincinnati

“

Ohio tax reform: Year 2 in review

Making Ohio companies more competitive in the global economy

Ohio’s private and public leadership collaborated to effect the most sweeping taxreforms in 75 years — modernizing the tax code, providing welcome tax relief for Ohiocitizens and helping grow the economy. This tax reform helps Ohio companies providean even stronger value proposition to the world’s consumers by lowering operatingcosts and helps employees better achieve their personal aspirations by increasing theirdisposable income.

The net impact of the reform is that Ohio now offers companies the lowest new capitalinvestment tax structure in the Midwest.

Unlike in other states, companies are no longer taxed for investing in capital improvements necessary to be competitive. Projects to modernize manufacturing lines and invest in machinery and equipment can now more easily move from the planning phase to execution.

The key to success in Ohio’s tax reform is that it was designed around a set of principles agreed to by private and public sector leaders. The six guiding principles are:

1. Grow the talent base, which is a critical element in building businesses andgrowing the economy, by eliminating high tax burdens on individuals.

2. Foster new capital investment, especially in Ohio’s globally renowned advancedmanufacturing, advanced design and advanced materials industries.

3. Broaden the base to include all sectors of the economy and create a true risk sharing partnership between the public and private sectors.

4. Stimulate entrepreneurial and start-up activity, which is the bedrock of a growing economy.

5. Make the tax code fair, equitable and simple for taxpayers.

6. Enable the state to invest responsibly by providing a stable and sufficient revenue stream.

The net effect of the new tax code is to shift the burden away from taxing investment,profitability and wealth creation — toward taxing consumption. This strategy allowscompanies and individuals to invest in creating a stronger future.

3


The new tax code

creates a much

more business- and

investment-friendly

climate in our state.

I am especially

delighted that the

Greater Cleveland

Partnership was

able to partner with

the Ohio Business

Roundtable in this

accomplishment.”

Alexander M. CutlerPast ChairmanGreater Cleveland

Partnership

Chairman and CEOEaton CorporationCleveland

A business leaders’ guide

“

The real world impact is a reduction of up to 63% in Ohio’s tax burden.

The Ohio tax reform made significant changes in almost all major state and local taxes. The positive impact will grow through the five-year phase-in period and reachmaximum impact in 2010. Based upon computer forecasts, the following provides anoverview of the projected impact of this reform:

• Provide a cumulative, five-year tax reduction of $10.6 billion, compared to forecasts of the taxes that would otherwise have been collected based on the tax system in place in 2005.

• Eliminate Ohio’s corporate profits and net worth taxes, a reduction of roughly$1.6 billion (2010 figure) a year in business taxes; subsidiaries of banks and insurance companies will still pay the tax.

• Eliminate local property taxes on inventory, machinery and equipment, and furni-ture and fixtures for an annual savings of roughly $1.6 billion in business taxes.

• Lower sales taxes by roughly $770 million, compared to the sales tax rate thatapplied in 2005.

• Offset part of these revenue reductions through an increase in cigarette taxes and adoption of a low-rate, broad-based gross receipts tax on virtually all typesof businesses. The cigarette tax increase will generate roughly $398 million in2010. The gross receipts tax will generate roughly $1.6 billion.

Specialized econometric models, built for the Ohio Business Roundtable by Ernst & Young, project that by 2010 the reforms will grow Ohio’s economy by increasing gross state product by $5.6 billion and personal income by $3.6 billion. It also will inject an additional $6.3 billion of new capital investment in Ohio’s economy. There is every indication that we are well on our way to achieving this target as evidenced by the data reflected on page 15 in this booklet.

$0.0

$200.0

$400.0

$600.0

$800.0

$1,000.0

$1,200.0

$1,400.0

BEFORETax Reform

6/30/05

AFTERTax Reform

7/1/10

DOWN63%

4


Ohio’s tax reform

initiatives have

simplified the tax

system and improved

both the state’s busi-

ness environment and

the competitiveness

of Ohio companies.”

Tim SmuckerChairman & Co-CEOThe J.M. Smucker

CompanyOrrville


“

Here’s how Ohio’s new tax structureimpacts the bottom line for companies

Bolster your productivity. Eliminate tax on machinery, equipment, furniture and fixtures.Ohio’s revised tax code eliminates tax on capital for new machinery and equipment, so you can invest in greater productivity with zero tax burden. Taxes on machinery andequipment placed in Ohio before January 1, 2005 will be reduced each year until the taxis eliminated in 2009. The tax on furniture and fixtures will also be reduced each yearthrough 2008. Machinery and equipment placed in service after January1,2005 is exempt.

Maximize your profits. Eliminate corporate income and franchise taxes.Taxing profits hurts your company and hampers growth opportunities. These taxes will be eliminated completely in Ohio by tax year 2010.

Boost your ROI. Eliminate tax on sales of goods and services to customersoutside of Ohio.Only sales within the state are taxed at a flat rate of 0.0026, which translates to $2.60 per $1,000 of Ohio sales. You get a greater return on your investment dollar.Sales to or benefitting non-Ohio customers are completely exempt from the CAT.

Reward your entrepreneurial ventures. No tax on first $1 million in annual gross receipts.*

This provides attractive relief for small businesses, especially those that transact most or all of their business in Ohio. Helps new businesses get established and show a profit sooner. *Gross receipts between $0 and $150,000 pay nothing, between $150,001 and $1,000,000 pay a $150 fee. 5


Success comes from

teamwork, and

Honda's partnership

with Ohio has

been rewarding for

everyone involved.

We're already looking

forward to the next

25 years.”

Tsuneo TanaiPresident & CEOHonda of America

Manufacturing, Inc.Marysville

“


Slash your operating costs. Eliminate tax on inventory.Carrying inventory costs can be a heavy burden for your company, especially warehousing and distribution operations. Tax on inventory held in Ohio will be fullyeliminated for inventory held after January 1, 2008.

Attract the best talent; shrink labor costs. Reduce personal income tax by 21%.High personal income tax adversely affects your company’s ability to attract and retaintop-level managers and high-skilled workers. Lowering the state personal income taxmakes Ohio a more attractive location for corporate executives to live and work.

Enjoy a level playing field. All businesses are taxed at the same low rate.No unfair advantages. No favored competitors.

Real world impact of tax reform on capital investor’s decisions

In August 2006, the Ohio Business Development Coalition sponsored a telephone survey among executives that chose Ohio for capital investment. The purpose of thestudy was to better understand the role Ohio’s new tax structure played in their capitalinvestment decision. A total of 62 interviews were completed.

Demographics of responders

Characteristic Data

Company Size in Annual Sales 43.5% < $100M

35.5% > $100M

20.1% refused to answer or didn’t know

Job Title 40.3% C-level executive

59.7% other executive

Conclusion

C-level executives (CEO, CFO, COO, etc.) view Ohio’s new tax structure as an importantconsideration in the capital investment decision.

• Among C-level executives, 60% indicated it was a “somewhat to very important”consideration in selecting Ohio for capital investment.

• 83.9% of total respondents rated elimination of property tax on investments in machinery and equipment as appealing.

• 82.3% of total respondents rated no business tax on products sold to customersoutside Ohio as appealing.

• 56% felt positive enough about the tax reform that they indicated they’d be willing to provide positive endorsements of Ohio’s business climate.

6


The global appliance

industry is extremely

competitive, and the

improved business

climate in Ohio,

including the 2005 tax

reform made the state

far more attractive to

do business. The end

result was our decision

to expand our laundry

operations and allow

our almost 9,000 Ohio

employees to do what

they do best, make

the world’s most

innovative and

energy efficient

home appliances.”

Michael TodmanWhirlpool NorthAmerica PresidentWhirlpool CorporationClyde and Marion

“


Industry-specific examples of theimpact of Ohio’s tax reform

Ohio’s new tax structure is designed to enable Ohio-based companies to be even morecompetitive in the global economy. The tax structure has been described as “profitfriendly” and for good reason. For most industries, the new tax structure translates intoa significant reduction in business tax liability. Working dollars that were previouslyexpensed as taxes can now be redeployed to support capital investment and other company needs.

The specific impact of the new tax structure does vary by industry. The following pagesshare scenarios for a number of industries. The intent is simply to provide additionalperspective for consideration. Capital investors can get a precise look at the impact of Ohio’s new tax structure by requesting a customized analysis from the Office ofBusiness Development at the Ohio Department of Development by calling 1-877-466-4551.

In the following cases, the tax structures for Michigan, Indiana, Illinois, Wisconsin and Minnesota reflect the tax law in place during calendar year 2007. When city data was required, the following city data was referenced — Monroe, Ohio; Springfield,Illinois; Indianapolis, Indiana; Eau Claire, Wisconsin; Rochester, Minnesota; and Ann Arbor, Michigan.

7


Source: Ohio Department of Development, Policy, Research & Strategic Planning Office

MIINIL WI MN$0.0

$400.0

$800.0

$1,200.0

$1,600.0

$2,000.0

$2,400.0

$2,800.0

BEFORETax Reform

AFTERTax Reform

DOWN58%

Major State and Local Taxes: Ohio & Selected LocationsBefore application of incentives and abatementsFocus on business tax liability

Dollars in thousands

IL IN WI MN MIBEFORETax Reform

AFTERTax Reform

Summary Total $1,487.8 $618.7 $791.8 $1,417.7 $1,692.9 $1,945.7 $2,272.2

Of that total:

Real Property Tax 402.9 447.7 582.7 509.2 413.6 485.3 632.7

Personal Property Tax 753.2 0.0 Exempt 556.0 749.2 882.9 1,146.1

Of that total:

1) Market Value of Equipment 612.2 0.0 Exempt 556.0 749.2 882.9 1,146.1

2) Market Value of Furniture, etc. 0.0 0.0 Exempt 0.0 0.0 0.0 0.0

3) Market Value of Inventories 141.0 0.0 Exempt Exempt Exempt Exempt Exempt

State Corporate Income Tax 118.6 0.0 21.9 140.3 145.9 87.6 250.0

Business Privilege Taxes 0.0 2.8 n/a n/a n/a n/a n/a

Personal Tax Liability – State 213.1 168.3 187.2 212.2 384.2 489.8 243.4

AGRIBUSINESSWhat businessleaders think

Initially I was

skeptical about tax

reform — believing it

would simply result

in winners and losers.

Now that the dust

has cleared, it is quite

evident to me that tax

reform has been good

for The Andersons,

good for business and

good for the people

of Ohio.”

Richard P. AndersonChairmanThe AndersonsMaumee

“

8

WIMNIL MI IN$0.0

$300.0

$600.0

$900.0

$1,200.0

$1,500.0

$1,800.0

$2,100.0

BEFORETax Reform

AFTERTax Reform

DOWN71%



IL MN MI IN WIBEFORETax Reform

AFTERTax Reform

Summary Total $1,662.4 $489.2 $649.3 $1,542.4 $1,587.4 $1,739.8 $1,883.5

Of that total:


Personal Property Tax 348.7 0.0 Exempt 331.1 429.8 208.5 281.0

Of that total:

1) Market Value of Equipment 220.0 0.0 Exempt 317.8 412.6 200.2 269.7



State Corporate Income Tax 844.7 0.0 82.4 573.0 518.7 1,007.4 1,047.7



BIOTECH



Although Dover

Chemical has opera-

tions in several states,

we decided in 2005 to

invest approximately

$12 million into a new

plant in Ohio. This

decision was due

in large part to the

improving tax climate.”

Darren SchwedeCFODover ChemicalCorporationDover

“


9

MIINIL WI MN$0.0

$500.0

$1,000.0

$1,500.0

$2,000.0

$2,500.0

$3,000.0

$3,500.0

BEFORETax Reform

AFTERTax Reform

DOWN55%




AFTERTax Reform

Summary Total $2,216.8 $987.1 $1,073.7 $1,822.2 $2,359.9 $2,560.9 $3,294.7

Of that total:



Of that total:




State Corporate Income Tax 415.4 0.0 75.9 486.2 505.6 303.7 1,416.0


Personal Tax Liability – State 685.4 541.4 502.5 569.5 1,053.1 1,314.9 653.3

MANUFACTURING



With all the challenges

in business today, it’s

important to have an

active, pro-business

ally to help commerce

turn smoothly. For

Timken, Ohio has

been that ally.”

Tim TimkenChairmanThe Timken CompanyCanton

“


10

MIINIL WI MN$0.0

$200.0

$400.0

$600.0

$800.0

$1,000.0

$1,200.0

$1,400.0

BEFORETax Reform

AFTERTax Reform

DOWN70%




AFTERTax Reform

Summary Total $979.0 $297.9 $415.1 $828.5 $1,130.9 $1,146.0 $1,428.1

Of that total:



Of that total:




State Corporate Income Tax 362.4 0.0 157.7 397.8 413.7 320.3 806.9



POLYMERS& CHEMICALS



The timing of Ohio’s

tax reform couldn’t

have come at a better

time as Polymer

Packaging searched

for a suitable location

to expand its opera-

tions. The elimination

of the personal

property tax at a time

when we are going

to invest so much

in equipment and

inventory will result

in considerable

savings that will help

offset our increased

working capital needs.”

Jeff DavisCFOPolymer Packaging, Inc.Massillon

“


11

MIINIL WI MN$0.0

$4,000.0

$8,000.0

$12,000.0

$16,000.0

$20,000.0

$24,000.0

$28,000.0

BEFORETax Reform

AFTERTax Reform

DOWN62%




AFTERTax Reform

Summary Total $15,327.3 $5,759.7 $6,870.6 $15,730.4 $20,108.4 $20,469.5 $23,403.6

Of that total:

Real Property Tax 2,216.2 2,462.4 3,204.6 2,800.8 2,274.9 2,669.3 3,479.9

Personal Property Tax 5,349.8 0.0 Exempt 4,726.0 6,368.5 7,504.7 9,741.6

Of that total:

1) Market Value of Equipment 5,055.6 0.0 Exempt 4,587.0 6,181.2 7,284.0 9,455.1



State Corporate Income Tax 3,747.8 0.0 365.0 4,462.5 4,641.0 2,538.2 5,890.9


Personal Tax Liability – State 4,013.4 3,169.7 3,301.0 3,741.1 6,824.0 7,757.3 4,291.2

AUTOMOTIVE



As Cooper continues

to grow in a global

market, we appreciate

the efforts Ohio has

made to enhance

business opportunities

in the state.”

Roy ArmesChairman,

President & CEOCooper Tire & Rubber

CompanyFindlay

“


12

MNINIL MI WI$0.0

$1,000.0

$2,000.0

$3,000.0

$4,000.0

$5,000.0

$6,000.0

$7,000.0

BEFORETax Reform

AFTERTax Reform

DOWN42%



IL IN MI WI MNBEFORETax Reform

AFTERTax Reform

Summary Total $3,868.7 $2,258.4 $2,341.4 $3,827.1 $5,054.3 $5,549.7 $5,927.3

Of that total:



Of that total:




State Corporate Income Tax 1,091.7 0.0 65.7 1,313.3 2,081.1 1,365.8 715.6


Personal Tax Liability – State 2,394.0 1,890.9 1,809.6 2,050.9 2,352.5 3,778.2 4,735.1

PROFESSIONALSERVICES



Ohio’s new tax

reforms will be

a great benefit to

our business and to

many of our financial

services customers

as well.”

Nancy V. KellyExecutive Vice PresidentHuntington National BankColumbus

“


13

MIINIL WI MN$0.0

$100.0

$200.0

$300.0

$400.0

$500.0

$600.0

$700.0

BEFORETax Reform

AFTERTax Reform

DOWN63%



IL IN WI MI MNBEFORETax Reform

AFTERTax Reform

Summary Total $346.1 $128.7 $175.7 $365.7 $524.3 $588.6 $619.5

Of that total:



Of that total:




State Corporate Income Tax Company classified as LLC Company classified as LLC



LOGISTICS



We believe in strong

partnerships with our

customers, helping

them maximize their

opportunities at every

touch point. Ohio’s

pro-business philoso-

phy maximizes our

opportunities in the

same way.”

André ThorntonPresident & CEOASW GlobalMogadore

“


14

50 –

SO

UT

H D

AK

OTA

49 –

NE

W H

AM

PS

HIR

E

48 –

TE

XA

S

47 –

MIS

SO

UR

I

46 –

TE

NN

ES

SE

E

45 –

CO

LO

RA

DO

44 –

ALA

BA

MA

43 –

GE

OR

GIA

42 –

AR

IZO

NA

41 –

FLO

RID

A

40 –

SO

UT

H C

AR

OLIN

A

39 –

OR

EG

ON

38 –

37 –

IO

WA

36 –

MIS

SIS

SIP

PI

35 –

IN

DIA

NA

34 –

UTA

H

33 –

NE

BR

AS

KA

32 –

ILLIN

OIS

31 –

KE

NT

UC

KY

30 –

ID

AH

O

29 –

MIC

HIG

AN

28 –

MO

NTA

NA

27 –

NE

VA

DA

26 –

VIR

GIN

IA

25 –

OK

LA

HO

MA

24 –

PE

NN

SY

LVA

NIA

23 –

KA

NS

AS

22 –

NO

RT

H C

AR

OLIN

A

21 –

LO

UIS

IAN

A

20 –

WE

ST

VIR

GIN

IA

19 –

WIS

CO

NS

IN

18 –

AR

KA

NS

AS

17 –

RH

OD

E IS

LA

ND

16 –

NE

W M

EX

ICO

15 –

MA

RY

LA

ND

14 –

MA

INE

13 –

WA

SH

ING

TO

N

12 –

NO

RT

H D

AK

OTA

11 –

CA

LIF

OR

NIA

10 –

MA

SS

AC

HU

SE

TT

S

9 –

NE

W Y

OR

K

8 –

NE

W J

ER

SE

Y

7 –

DE

LA

WA

RE

6 –

MIN

NE

SO

TA

5 –

CO

NN

EC

TIC

UT

4 –

WY

OM

ING

3 –

HA

WA

II

2 –

VE

RM

ON

T

1 –

ALA

SK

A

$0.0

$1000.0

$2000.0

$3000.0

$4000.0

2007

Source: Analysis of statistics from the U.S. Census Bureau by the Federation of Tax Administrators.

50 –

SO

UT

H D

AK

OTA

49 –

TE

XA

S

48 –

NE

W H

AM

PS

HIR

E

47 –

CO

LO

RA

DO

46 –

MIS

SO

UR

I

45 –

TE

NN

ES

SE

E

44 –

ALA

BA

MA

43 –

SO

UT

H C

AR

OLIN

A

42 –

GE

OR

GIA

41 –

OR

EG

ON

40 –

AR

IZO

NA

39 –

MIS

SIS

SIP

PI

38 –

UTA

H

37 –

FLO

RID

A

36 –

LO

UIS

IAN

A

35 –

MO

NTA

NA

34 –

OK

LA

HO

MA

33 –

IO

WA

32 –

KA

NS

AS

31 –

IN

DIA

NA

30 –

ID

AH

O

29 –

ILLIN

OIS

28 –

NE

VA

DA

27 –

26 –

VIR

GIN

IA

25 –

NO

RT

H C

AR

OLIN

A

24 –

NE

BR

AS

KA

23 –

KE

NT

UC

KY

22 –

PE

NN

SY

LVA

NIA

21 –

NO

RT

H D

AK

OTA

20 –

NE

W M

EX

ICO

19 –

MA

INE

18 –

AR

KA

NS

AS

17 –

WA

SH

ING

TO

N

16 –

WE

ST

VIR

GIN

IA

15 –

MIC

HIG

AN

14 –

MA

RY

LA

ND

13 –

WIS

CO

NS

IN

12 –

RH

OD

E IS

LA

ND

11 –

NE

W Y

OR

K

10 –

NE

W J

ER

SE

Y

9 –

CA

LIF

OR

NIA

8 –

ALA

SK

A

7 –

MA

SS

AC

HU

SE

TT

S

6 –

MIN

NE

SO

TA

5 –

DE

LA

WA

RE

4 –

CO

NN

EC

TIC

UT

3 –

WY

OM

ING

2 –

HA

WA

II

1 –

VE

RM

ON

T

$0.0

$1000.0

$2000.0

$3000.0

$4000.0

2005

32

31 –

IN

D

– ID

AH

OOIS

11 POSITION IMPROVEMENT


We’ve grown and

flourished in Ohio’s

business climate.

The future looks

brighter than ever.”

Kate BailyVice President,

General MerchandiseManager, Direct

DSW, Inc.Columbus

“


15

Lightening Ohio’s state tax burden

Just two years into a five-year rollout, Ohio has already improved its standing among all 50 states by 11 positions (from the 27th position in 2005 to the 38th lowesttax state in 2007.)

TAX

ES P

ER C

API

TATA

XES

PER

CA

PITA


We believe there is no

better business to be

in than ours and no

better place to call

home than Ohio.”

James HagedornChairman & CEOThe Scotts Miracle-Gro

CompanyMarysville

“


16

Company

1. Goodyear Tire & Rubber Co.

2. American Electric Power

3. Amylin Pharmaceuticals

4. General Motors Corp.

5. Buckeye Biofuels LLC

6. Ford Motor Co.

7. Altra Inc.

8. Cleveland Clinic

9. Poet Biorefining

10. Titan Tire Corp.

11. Avon Products Inc.

12. Appleton Papers

13. Aqua Paradise Waterpark

14. Zinc Ox Resources

15. General Electric Co. Aviation

16. Ohio Renewable Fuels

17. Humana Insurance Co.

18. FedEx Ground

19. Banks Intermodal Transit Center

20. Whirlpool/Penske Logistics

Location

Akron

Coshocton

West Chester Twp.

Toledo

Toledo

Sharonville

Marion Twp.

Mayfield Hts.

Marion Twp.

Bryan

Washington Twp.

West Carrollton

Lodi

York Twp.

Peebles

Fremont

Cincinnati

Perrysburg Twp.

Cincinnati

Columbus

In millions

$890

$430

$400

$332

$220

$200

$174

$163

$130

$125

$115

$100

$100

$94.8

$90

$87

$86

$80

$76

$75

Project

New headquarters

Electric power plant

New plant

Upgrade to transmission plant

Ethanol plant

Upgrade to transmission plant

Ethanol plant

Hillcrest Hospital improvements

Ethanol plant

Tire plant expansion

Cosmetics distribution/warehouse

Coated papers plant

Waterpark, hotel

Zinc products plant

Aircraft engine R&D

Ethanol plant

Insurance office

Distribution hub

Transportation hub

Appliance distribution/warehouse

The 20 largest private investment projects in Ohio announced or started last year

Source: Ohio Department of Development Office of Strategic Research

New private investment growing in Ohio

20052006

2007

$3.8 billion$5.9 billion

$7.1 billion

The 20 largest private investmentprojects in Ohio announced orstarted last year

New private investment growingin Ohio


There are many cities

and towns around

the world that P&G

people call home, but

Ohio has always been

home to our corporate

headquarters.

We’re proud of our

Ohio history and

committed to a future

of growth in Ohio.”

A.G. LafleyChairman of the Board

and CEOThe Procter & Gamble

CompanyCincinnati

“


17

Companies that chose Ohiofor expansion and/or investment

4over IncA&A Safety/QuattroA&B Foundry & MachiningA.M. LeonardABC ManufacturingAdvanced Engineering SolutionsAdvantage Powder CoatingAerosport ModelingAIDA Dayton TechnologiesAIDCO InternationalAK AthleticsAK SteelAkro-MilsAl NeyerAlcoa IncAll Pro Freight SystemsAllen AircraftAlpha TechnologiesAltra IncAmerican AugersAmerican Electric PowerAmerican Punch CoAmerican StoneAmerican Tank and FabricatingAmerican TrimAmerimulchAmpac Packaging LLCAmylin PharmaceuticalsAnchor CompaniesAppleton PapersApplied Medical TechnologyAqua Paradise WaterparkARES IncArmor HoldingsArtco GroupAshtabula City Ind ParkA-StampATK Space SystemsAvon Products IncB&B Plastics RecyclingBall Metal CorpBaltic Avenue EnterprisesBanks Intermodal Transit CenterBanner Service CorpBarberton Citizens HospitalBare EscentualsBateman RoadBatesville LogisticsBDC Management GroupBear Creek CapitalBear Creek/Harry & DavidBEAR Materials/RenegadeBedrock GroupBenchmark GroupBerk EnterprisesBestway Motor LinesBettcher IndustriesBicron/St GobainBilco CoBiltrite IndustriesBJ AlanBlanchard Valley Health SystemBob EvansBoeing CoBoltaron Performance ProductsBosch Rexroth AGBrilex IndustriesBrown-CampbellBuckeye Biofuels LLCBuckeye Ethanol/McGinnis

Bucyrus Community HospitalBudenheim USABullen UltrasonicsBunge North AmericaCAMACO IncCambria ManufacturingCambria SuitesCandlewood SuitesCardinal HealthCasto Deerfield LtdCelina HospitalityCellucom Outlet IncCellular TechnologyCenter Point Dev LLCCentral Park of GahannaCharles River LaboratoriesCheckered ExpressChemcentralChemtronCincinnati Children's HospitalCircleville CICClark StateCleveland ClinicCleveland Clinic/HillcrestCleveland Hopkins AirportCleveland Wire ClothClovervale Farms IncCoastal Pet ProductsCole RealtyColeys IncCollins InkColumbia Chemical CorpComfort Inn & SuitesComputer Sciences CorpContinental AirlinesCooper FarmsCornwell Quality ToolsCorridor D BridgeCountry Inn & SuitesCovertCovington CapitalCrafts Americana GroupCrate & BarrelCreative Cabinets Systems IncCrown BatteryCrown EquipmentCrown Partners LLCCrowne PlazaCrucible Materials CorpCustom Manufacturing SolutionsCutting Systems IncDaimler GroupDannon CoDayton International AirportDayton OriginDelta SystemsDermaMed Coatings CoDHLDiagnostics Hybrids IncDP PartnersDublin Building SystemsDuke RealtyDuPontDuPont/Liqui-BoxDurable CorpDyna Flex IncEagle Machinery & SupplyEchoStarElixir LLCElyria Foundry

Embassy Suites - AirportEnterprise Information MgmtEnterprise Rent-a-CarEnviro-FlowEPD IncEPSEquity Administrative ServicesERetailingExel/DannonExpediting Co IncExtudex CorpEZ Grout CorpF&P AmericaFedEx GroundFerriot IncFinton EquipmentFirstEnergy CorpFirstGroup AmericaFisher & PaykelFlorida Production EngineeringFord Motor CoFoundations Children's ProductsFreeman Schwabe MachineryFrontier Steel CoG&M Media PackagingGalion Community HospitalGalion Municipal AirportGE AviationGE Transportation SystemsGeis CosGeneral Aluminum Mfg CoGeneral DynamicsGeneral FilmsGI PhysiciansGlobal Contact ServicesGlunt Industries IncGM CorpGM Corp/James GroupGolden Heritage FoodsGoodyear Tire & Rubber CoGrandview HospitalGreat Lakes Brewing CoGreen Investment GroupGreen Source ProductsGreene Memorial HospitalGSW ManufacturingGuardian GlassH&S ToolHampton InnHancock Wood ElectricHarco ManufacturingHeadwaters ResourcesHealth Plan ServicesHeart Institute of NW OhioHeartland Refinery GroupHEF USAHendrickson USAHeritage StoneHexion Specialty Chemicals IncHinkley LightingHirzel Canning CoHoliday InnHoliday Inn ExpressHolophane CorpHomewood SuitesHonda of AmericaHope HotelHumana Insurance CoHyland SoftwareHyperlogistics Group


Creating value for our

shareholders is one of

RPM’s primary goals.

Ohio’s business-friendly

environment helps

us remain a very

attractive investment

year after year.”

Frank C. SullivanPresident & CEO RPM International, Inc.Medina

“


18

Imasen Bucyrus TechnologyIndustrial Developments Int’lIndustrial Partners LLCIndustrial Tool & MachineIndustrial Works ManagementInfoCision ManagementInfra-Metals CoInservcoInsurance.com IncIntechra LLCIntelect MedicalInternational Automotive ComponentsIwata Bolt USAJames H Gettles LLCJefferson Industries CorpJK-CO LLCJM SmuckerJohnson Brothers Rubber CoJohnston Aviation CoJoint Township District HospitalKalahari Resorts IncKellogg CoKenan Advantage GroupKendle International IncKent DisplayKey Resin CoKhempcoKing's Command FoodsKirco Development LLCKiser EnterprisesKoch FoodsKowit & PassovKraft Power CoLake Hospital SystemLastar IncLaszeray TechnologiesLima Memorial Health SystemLincoln Electric CoLogistics Support ManagementLuxottica / Cole VisionLyondell ChemicalMack IndustriesMacomb GroupMacy'sMane IncMarathon Petroleum CoMarietta CollegeMarion IndustriesMarriott CourtyardMattingly Foods IncMaui Sands ResortMercer LandmarkMercy HospitalMeritex Columbus LLCMetalworks 95 IncMEVA Framework SystemsMiami UniversityMicrotel InnMid-States PackagingMillat IndustriesMiller Brewing CoMiller ValentineMills-Morgan DevelopmentMorning PrideMorton SaltMulti-Color CorpMyers Industries / Akro-MilsNational Biological CorpNDT LtdNelson ManufacturingNeturen AmericaNewman TechnologyNext GenerationNeyer PropertiesNibco IncNissin BrakeNissin Brake OhioNorfolk Southern

North American Bus IndustriesNorthgate Commerce CenterNorthwest Industrial BypassNow SoftwareOhio Northern UniversityOhio Renewable FuelsOkamoto IndustriesOKS-Ameridial IncOmincare/WesthavenOmniSource CorpOMYA IndustriesOpus North CorpOrthoHelix Surgical DesignsOtterbein RetirementOwens Community CollegeOwens CorningPAC National / CompartirPacejet LogisticsPacific Fuel Cell CorpPandora Manufacturing CoParker HannifinPartsSource LLCPatentHealth IncPayless Shoe SourcePCC Airfoils LLCPhilips MedicalPilot PlasticsPizzuti DevelopmentPJAX Freight SystemPlanetSpacePlastic Recycling Technology Plastikos CorpPlus Management ServicesPoet BiorefiningPolymer MachineryPower DirectPPGPreble County Medical CenterPremier Development PartnersPrime TechnologyPrimerose RetirementPrinting Concepts IncProcter & GambleProQuip IncQbase IncQuadax IncQuality Electro DynamicsQuality MachiningQuick ClinicRAS ManufacturingRed Roof InnsReduction Engineering IncReiter DairyRenegade Materials CorpRenewable Agricultural EnergyRepublic Engineered ProductsRescentris IncResidence InnResource VenturesRestaurant DepotRestoration Hardware IncRicerca Biosciences LLCRickenbacker Int'l AirportRieter AutomotiveRiffle Machine WorksRing ContainerRisk InternationalRiver's Bend HealthCareRoad Runner SportsRookwood CorpRoss Casting & Innovation IncRoss Products/AbbottRoute 7S&G Manufacturing GroupSaehwa Machinery CoSandridge Food CoSanson CoSBC

Schindler Elevator CorpSchipper GroupSchumacher DuganSDC / Steven Douglas CorpSedgwick CMSSensus LLCSewer projectsSEW-EurodriveShafer Redi-MixShearer's Foods IncShilohSignet EnterprisesSilgan PlasticsSimon Roofing & Sheet MetalSinclair Community CollegeSmyth AutomotiveSogeti USA LLCSonoco Products CoSpader FreightSpartan ChemicalSpecialty Metal ProcessingSpeedFC IncSpineMatrix IncSpringhill SuitesSpunfabStage Stores/Specialty RetailersStarr ManufacturingStaybridge SuitesStress EngineeringStruthers Metal ServiceStyle Crest ProductsSuavely Building CoSummer Garden Food MfgSun ChemicalSwitchback GroupTata America / TCSTCP IncTeleTechTenneco AutomotiveTeradata CorpTherics LLCThermaFab AlloyTHK ManufacturingTimken CoTitan Tire CorpToledo Riverview HotelTowne Place SuitesTropical Fruit & NutTrust Technologies/KilroyTTI Floor CareUnion Rural ElectricUniversal Tire MoldsUniversity InnUniversity of Northwestern OhioUSF Holland/RoadwayValley Metal WorksValue Place HotelVerizon WirelessVeyance TechnologiesViking InternationalVNC Bearing IncVolunteer EnergyWannemacher EnterprisesWave Development LLCWellington OrthopaedicWellman ProductsWheeling Pittsburgh SteelWhirlpool CorpWhirlpool/Penske LogisticsWingate InnWoodbine ProductsWoolpert LLPWorkflow.comWright Distribution CentersWright Materials Research CoYachiyo of AmericaZincOx Resources plcZyvex Performance Materials


A conversation about the impact of Ohio tax reform...

Two years into the implementation phase of tax reform, Tom Zaino, Member in Charge

of the Columbus office of McDonald Hopkins and former Tax Commissioner of the State

of Ohio, asked two corporate tax directors and a small business owner to provide their

thoughts and assess progress. The respondents are: Tom Kemen, Associate Director,

Economic Development & Tangible Taxes, Tax Division, The Procter & Gamble

Company; Vince Magnacca, Manager, State & Local Tax, Goodyear Tire & Rubber

Company; and Michael Bass, President & CEO, Hy-Ko Products Company.

Zaino: One key goal of thetax reform was to provideOhio-based companies anadvantage when competingin the global economy. Whathas the 2005 Ohio tax reformmeant for your business?

Kemen:The new tax act phased

out two tax structures that severely

penalized in-state businesses… the

corporate income/franchise tax and

the business personal property tax.

Both of these tax structures placed

a larger tax burden on in-state

businesses that had already made

significant commitments to Ohio

through capital investment and job

creation within Ohio. There should be no question the tax reform will achieve its

purposeful goal, which is to enhance Ohio’s ability to attract new business and

encourage existing businesses to expand.

Our company continues to invest capital in our existing Ohio locations. P&G’s

manufacturing plant in Lima, OH is a good example. This plant competes internally

versus several other North American sites to be the low cost provider of P&G’s liquid

detergent business. Within the last three years, P&G has invested over $150 million

in capital at the Lima plant to expand its production capacity, provide additional

warehouse capacity, and lower operating costs. The expansion is expected to create

about 70 additional jobs.


From our headquar-

ters in Ohio, Invacare

has become the

world leader in the

manufacture and

distribution of home

medical products.

The state's new tax

laws will help us

continue to grow.”

A. Malachi Mixon, IIIChairman & CEO Invacare CorporationElyria

“

19

Bass: As a manufacturing and distribution company based in Ohio for over 50 years,

the elimination of the personal property tax on equipment and inventory provides a

distinct competitive advantage by lowering our cost of maintaining our core operations

in Ohio. In addition, the significant reduction of income taxes with the replacement of

the CAT tax also is a benefit, because a significant amount of our sales occurs outside

of Ohio. Realizing these savings gives us additional capital to redeploy and reinvest

into our equipment and new inventories. These are exciting opportunities for us to

expand our core business.

Magnacca:The phasing out/elimination of the personal property tax will spur

economic investment of both inventory/distribution center type businesses and

increase manufacturing and related jobs in Ohio. Eventual elimination of Ohio

Corporate Income/Franchise taxes also provides similar incentive for businesses to

locate here or stay here. Our recent announcement to build a new Akron Corporate

Headquarter Campus and, thus, stay in Akron was based in part on the 2005 reform.

For Goodyear, our total Ohio tax liability has stayed about the same after the 2005 Ohio

tax reform, but we now believe that our tax payments will be more stable in the future.

Stability and predictability are important to Goodyear, and the Ohio reforms helped

solidify the tax burden.



COBCO Enterprises

has called Ohio

home for almost eight

years and has seen

great success. Ohio’s

pro-business environ-

ment and tax reform

have been extremely

instrumental and I

look forward to the

years to come.”

Cynthia BoothPresident & CEOCOBCO EnterprisesCincinnati

“

20

Zaino: How would you assess the impact of the reforms on new capitalinvestment in Ohio? Do you think the new tax structure encourages acloser look at Ohio as a viable location option?

Kemen: Ohio’s tax structure would certainly encourage a closer look because it no

longer penalizes businesses with a large in-state physical presence.

Bass: Our company is building sales in certain product lines where we act as a

distributor of products made in Asia. With the tax reforms that are now operating in

Ohio, we are building strategic alliances with foreign entities to set up manufacturing

closer to our Ohio operations. This should diminish our costs by cutting down

the amount of logistical time to fill our supply chain, thereby reducing our levels

of inventory, increasing turns and improving our ROI.

Magnacca: Ohio-based companies should benefit from Ohio tax reform since, for the

most part, Ohio investment and Ohio taxable income are now made or earned “tax-free”

for Ohio purposes. Only Ohio sales/gross receipts are taxable under the CAT tax.


Ohio has been our

partner in providing

premier customer

service, steady

growth and financial

performance from

which we serve

customers in towns

and cities across

the world.”

Don WashkewiczChairman & CEOParker Hannifin

CorporationCleveland


“

21


As we’ve grown,

Ohio has been an

important business

partner. Recent tax

reforms have created

opportunities for even

greater success in the

years to come.”

Scott FarmerCEOCintas CorporationCincinnati

“

Zaino: The new tax structure is expected to help encourage increasedexports from Ohio-based companies. If you were CEO of a company withnon-U.S. customers, does the new tax structure offer you an advantage toprofitably increase your business?

Bass: During the last three years, our company has begun exporting to Mexico. With

the elimination of the personal property tax and restructuring of the corporate income

taxes, we can manufacture in Ohio and move product down to Mexico quicker and

with no duties (NAFTA). With modern logistics, getting product from Ohio to anywhere

in North America is quite easy and allows us to keep our executives and management

teams centrally located, while being able to support sales activities virtually anywhere.

The costs of doing business in Ohio are lower, which discourages us from looking

elsewhere because of tax overhead decision-making.

Magnacca: Goodyear is a major exporter, of course, and with our thousands of

non-U.S. customers, these reforms are helping to increase our business.


22

Zaino: In addition to helping to grow Ohio’s economy, among the guiding principles of the tax reform initiative were fairness, equity andsimplicity. How would you assess the results of tax reform from thosethree perspectives?

Kemen: Ohio’s tax reform has clearly helped most in-state businesses, as it has shifted

the tax burden to companies that earn income from their sales within Ohio but may

not have a large physical presence in the state. Clearly, the tax reform has drastically

reduced our company’s Ohio tax compliance efforts. We spent almost four months

of a full-time tax manager’s time in the tax compliance effort to complete our Ohio

multi-county property tax return and corporate franchise tax return. The new CAT

requires minimal effort each month to extract the data and submit our return, and

the work is now being done by administrative resources versus tax technical experts.

Bass: Now that the state is closing in on the four- or five-year phase-in cycle,

manufacturers are seeing the “daylight” to the administrative burdens which we’re

all worried about. We are trusting our legislators to maintain the simplicity of CAT

and not add additionals just when the “eureka” is achieved.

Magnacca: There can be no doubt that the Ohio tax reforms have leveled the playing

field on fairness, equity and simplicity. Everyone (in particular former companies

outside of Ohio that may be paying little or no Ohio tax) should be paying the CAT.

As it is currently set up, there is no hiding from it, and with the low tax rate; the

CAT alone should not be a hindrance for companies to do business in or with Ohio

companies. As long as the rate stays low, equity and fairness will be possible.


The two aspects of

the tax reform that

are of greatest inter-

est to entrepreneurs

are 1) no tax on the

first $1 million in

annual gross receipts

and 2) the elimination

of taxes on the sales

of goods and services

to customers outside

of Ohio.”

Tim TsaoVice PresidentSales & MarketingKahiki Foods, Inc.Columbus


“

23

Zaino: Some policymakers and business people are advocating a “waitand see” attitude before proposing any more changes to the state taxcode. How important is it that the assumptions underpinning the newtax structure are playing out as valid two years into implementation of the new tax structure? Is tax reform working, in your view?

Kemen: Businesses require a stable

tax environment. Therefore, it is very

critical that we adopt a “wait and

see” mentality before considering

any further changes. Revenues raised

by the CAT tax since its inception

have met or exceeded initial

projections, which indicates the

assumptions made at the time of

the tax reform were valid. The fact

that revenues have exceeded initial

estimates may be an indication that

the tax reform is, in fact, accomplishing

its objective of increasing Ohio’s

business opportunities. A good

gauge of the tax reform’s success

will be measured by the ability to

sustain a relatively low CAT tax rate

over an extended period.

Bass: As a business manager in the United States, everyone expects us to be credible,

honorable and trustworthy in our agreements and projections. Financial institutions,

governmental agencies and customers are all pressuring us to adhere to their strict

policies and regulations. From our perspective, all of these constrictions are roadblocks

to doing business and managing costs downward. In the tax and fiscal area of a

company’s budgetary process, we’ve been duped too often at the federal, state and

local levels where legislation is passed and never given enough operational cycle

to stabilize a businessman’s planning process. We’ve become suspicious of how

legislators change the rules of the game too quickly and too often. Instead of the

“wait and see” attitude, we need a “prove it to me” mindset before passing judgment.

My hope is that Ohio implemented its CAT tax reform for all of the right reasons, and

it will let the process function for a considerable length of time to show everyone how

effective it truly is in helping Ohio compete.


Ohio’s tax reform was

extremely instrumental

in our investment in

the facility in Butler

County. In our business,

it is very important to

make wise decisions

about where to locate

a facility and why.

The tax reform bene-

fits absolutely put

Ohio at the forefront

of attractive locations,

and we definitely made

the right choice.”

Ron RicottaPresident & CEOCentury Mold Co., Inc.Middletown


“

24


Lincoln Electric built

its business on inno-

vative products and

management. Ohio’s

business-friendly tax

environment encour-

ages and stimulates

innovation, growth

and expansion.”

John M. StropkiChairman

President & CEOLincoln Electric Cleveland


“

A look at the Tax Foundation 2008 Business Tax “Climate” IndexWhy the numbers DON’T add up

Executive SummaryWilliam Driscoll and Howard FleeterEducation Tax Policy Institute

The Tax Foundation released its 2008 business tax climate

index in the Fall of 2007. Ohio ranked 46th out of 50 states

where the ranking proceeds from #1 as best to #50 as worst.

The Tax Foundation report assigns a score to each state. The

report claims that the score quantifies the state’s business

tax climate. Each state’s final score results from the creation

of scores from five areas of tax policy — corporate tax,

personal income tax, sales and excise tax, property tax

and unemployment compensation tax. A separate “index”

for each of these tax types results from two scores developed from the sub-indexes

of rate structure and tax base for each of the five areas.

The deeply flawed nature of the “research” behind the index appears in many ways:

1. The ranking system involves a process of assigning arbitrary weights to

different aspects of each state's tax system. Not only does no research support

the assignment of these weights, but the report does not even show the full

distribution of those weights among the various parts of each tax system. As

a result, readers have no opportunity to assess the details underlying the index.

2. The Tax Foundation explicitly endorses anecdotal “evidence” as a sound basis

for tax research.

3. The ranking system intentionally excludes the one method of comparison

used by other assessments of tax climates: relative per capita or per

income tax burdens. Such comparisons of tax burdens rely upon objective

measures of taxes rather than a subjective scoring system with its

opportunities for manipulation.

25


Strategically, we see

serving the global

market as a key to

future growth. Ohio's

new tax structure

promises to be a

wonderful enabler

for us. The fact that

revenues generated

outside of Ohio are

not taxed is a great

benefit.”

Paul KoladaPrincipal & FounderPriority DesignsColumbus


“

4. Four faults characterize the Tax Foundation index:

A. Reduction of a Principle to AbsurdityThe business climate index rests upon the principle that the best taxes

have a broad base and a low rate. In fact, most tax experts agree with this

principle, but the Tax Foundation takes this general guideline to extreme

lengths. For example, its comparison of state income taxes emphasizes

rate structures. The comparison method rewards states with flat rates and

penalizes those with graduated rate structures. This rating method scores

Oregon as a better tax climate state than Ohio because Oregon has fewer

rate brackets, and its highest rate engages at a much lower level of income

compared to Ohio. The absurdity of Oregon's higher score appears in a

comparison of the actual tax burdens imposed in the two states. At every

income level, Oregon taxpayers pay higher income taxes than Ohioans.

At incomes between $40,000 and $120,000, Oregon income taxes equal

about one and one-half times the amount of Ohio income tax burdens.

A simple rate structure has value. However, the amount of actual taxes paid

is unquestionably the most important aspect of tax climate. To its detriment,

the Tax Foundation index relies on the rate structure principles and ignores

actual tax burdens.

B. Arbitrary BenchmarksThe method used to rank state tax climates assigns different percentage

weights to different parts of each tax system — corporate taxes, income

taxes, sales taxes, property taxes and unemployment taxes. Each of these

parts of the tax system is divided into a tax rate division and a tax base

division. The two divisions weigh equally. However, the application of this

method to Ohio's property tax system shows how arbitrarily the method

works. The “rate” division of the property tax actually compares per capita

property taxes and property taxes as a percent of income. The property

tax base division assigns a score based on whether a state does or does

not levy seven specific kinds of taxes, such as intangible property taxes,

inventory taxes or estate taxes. The ranking index punishes a state for

imposition of one or more of these taxes. Ohio does impose some of

these taxes, but their total burden equals about $1 billion. In contrast, the

taxes considered in the property tax rate division raise $13 billion. Yet, the

Tax Foundation ranking method assigns equal weight to both divisions.

26


The new tax structure

is designed to help

companies with

a global book of

business. The fact

that new machinery

and equipment is

exempt from property

tax encourages

companies to upgrade

and become more

efficient. The fact that

sales to customers

outside of Ohio are

not taxed helps

companies be more

competitive in pricing

while maintaining

margin.”

Eric BoltzPresidentMarathon Sensors Inc. West Chester

“


C. Emphasis on Some Principles While Ignoring OthersThe business climate index claims to follow the principle that taxes should

employ low rates on the broadest possible base. However, the ranking

method does not extend this principle beyond each individual tax to the

whole tax structure of a state. Instead, it does the opposite. The ranking

method rewards states for avoiding the use of a particular tax. For example,

Oregon gets the highest possible sales tax score because it does not have

a sales tax. Washington gets the highest possible income tax score because

it does not have an income tax. Both states have relatively unbalanced

systems in which the omission of one tax from the tax structure tends to

require over-reliance on another tax. Washington has relatively high sales

taxes, and Oregon has relatively high income taxes. In fact, public finance

experts recommend revenue systems in which a state balances reliance on

different sources of revenue: consumption (sales and excise taxes), income,

and wealth (property and estate taxes). Ohio's tax structure follows this

principle. Indeed, the principle amounts to an extension of the notion

that taxes should apply at low rates to a broad base. However, the Tax

Foundation index punishes states like Ohio for following this principle.

D. Subjectivity of the Tax Climate IndexIn 2004, the Tax Foundation ranked Ohio 29th in its tax climate index. For

2006, the organization changed its method by dropping a sub-index based

on a state's fiscal balance in favor of a wealth tax sub-index. The change

dropped Ohio's rank from 29th to 49th although no change had occurred

in the Ohio tax structure itself. The changes in the ranking method from

2004 to 2006 show the extent to which the Foundation's subjective

selection of categories for comparisons and the weights used in them

can be manipulated to make dramatic changes in states' rankings without

any changes in the underlying reality of state tax structures.

Conclusion

The Tax Foundation business tax climate index provides a poor indication of Ohio's

true tax situation:

1.The index focuses on tax structure rather than actual tax burdens. A state

with a more attractive tax structure (at least in the eyes of the Tax Foundation)

but higher actual taxes can receive a more favorable ranking than a state

with a less attractive structure but lower taxes. This is completely contradictory

to universally accepted economic theory regarding consumer and producer

behavior. While the Foundation proudly proclaims that they are not attempting

to compare tax burdens across states, this admission is the study’s fatal flaw,

as this is the only valid comparison to be made.

27


Our partnership

with Ohio gives us

a competitive edge

in developing and

commercializing

new products. We are

excited about bringing

our company’s

technology, global

business and financial

leadership together

in Ohio.”

Craig S. ShularPresident & CEOGrafTech

International, Inc.Lakewood

“


2.The actual construction of the tax climate index is based wholly on subjective

judgments made by the Tax Foundation regarding the relative role of different

factors. In some cases, different factors are weighted equally in a simple

“check-off” fashion, creating a bias against states with more balanced tax

systems. In other cases, factors are weighted on the basis of the variability

across states rather than the actual revenue importance, as would be the case

in a more standard interstate tax analysis. As a result, a state which performs

unfavorably on a low revenue tax with a wide variance can score lower than

a state which performs unfavorably on a high revenue tax with lower variance.

In dollar terms, which are the only terms that influence consumer and producer

behavior, the second state truly has the less favorable tax climate though the

Tax Foundation methodology would lead to the opposite result.

3.The methodology is inconsistent, and arguably irresponsible, in the extent to

which it takes future tax changes which have already been enacted into account

in its rankings.The Tax Foundation intentionally used the year 2008 in the title

of this report, implying that readers should use the findings as they think ahead

to future decisions. In light of this, the choice to not incorporate all known

information about future tax changes which have already been enacted is

both incomprehensible and indefensible.

4. Modification of the Tax Foundation Methodology shows great fluctuation in

state rankings.The Tax Foundation has, perhaps inadvertently, performed a

type of sensitivity analysis of its state ranking methodology. By modifying the

methodology used to construct the rankings and then retrofitting the results to

prior versions of the study, the Tax Foundation has shown that the old method

and the new method lead to very different assessments of the same state tax

systems. While the Foundation might argue that the new methodology is now

superior to the old, the reality is that both the old and new methodologies are

based upon subjective, though differing, judgments about what is important

and how it should be weighted. Close scrutiny, however, shows that neither

methodology provides a reliable or useful measure of relative state tax climate.

Based upon the above considerations, policymakers would be well-advised to rely

upon more traditional methods for assessing comparative state taxes provided by

analysts driven by objective motives rather than by ideological beliefs.

A more detailed analysis of the Tax Foundation’s business tax climate index appears

at the Education Tax Policy Institute’s website: www.etpi-ohio.org.

28


The new tax structure

sends a clarion call

to the investment

community and busi-

ness leaders across

the country that Ohio,

indeed, means business

— breathing life into

the defining vision

the BRT established

at the outset of its

tax reform initiative:

Ohio's tax climate will

be viewed across the

country as a distinctive

public asset in our

state's economic growth

and standard of living;

by the end of the decade,

we will begin to see

an upturn in business

investment and job

creation that is directly

attributable to changes

in state and local

tax policy.”

Richard A. StoffPresidentOhio Business

Roundtable

“


FAQ

Why do the national rankings continue to rate Ohio as a high tax state?

Most of the rankings rely on analysis of national databases that report state level tax burden in a consistent manner. Unfortunately, these databases are typically twoyears in arrears. Consequently, the numbers do not yet reflect the positive impact Ohio companies and citizens are realizing from Ohio’s tax reform. Additionally, the Ohio tax reform is being rolled out over a five-year period ending 2010. This meansmost databases will not accurately reflect the full impact of Ohio’s tax reform until the 2012 rankings.

Why does the Tax Foundation rank Ohio as a high tax burden state?

We respectfully disagree with the Tax Foundation’s characterization of Ohio’s tax burden. The Tax Foundation studies provide additional evidence on Ohio’s non-competitiveness prior to reform. However, they provide no practical insight into theimpacts of the new Ohio tax system. Their studies are looking backwards at the old system and, at best, only reflect the first year’s impact of the reformed system. On a more fundamental basis, the Tax Foundation analysis is not based on actual dollarspaid by businesses in state and local taxes. That is, in part, why the top states in the list tend to be states with no individual income taxes and/or no general sales tax. If you are interested in making a capital investment in Ohio, we would recommend that the best way to understand the real impact of Ohio’s tax reform on your bottomline is to request a custom report from the Ohio Department of Development. They will take your projected data and provide an estimated tax figure. You can contact theOhio Department of Development at their toll-free number (1-877-466-4551) and ask for a business development specialist.

Has CAT collection been consistent with the original forecast?

Actually, according to the Ohio Tax Department, CAT revenue is ahead of forecast. In FY ’06, collection ran +27% ahead of forecast, and in FY ’07, it ran +17% ahead of forecast. This is a very positive indicator and suggests the supporting financial projection of tax reform impact was appropriately conservative.

CAT revenue performance ($ millions)

FORECAST ACTUAL INDEX (%)

FY ‘06 214.4 273.4 127

FY ‘07 506.6 594.9 117

29

A postscript...

Ohio’s successful taxreform effort exemplifies“best-in-class” of thepublic-private partner-ship. This publicationspeaks through thevoice of many of thosepublic and private sector leaders – from theexecutive and legislativebranches of state government to membersof the Ohio BusinessRoundtable and otherbusiness and communityleaders. Without dimin-ishing any of this leader-ship, we especiallyacknowledge the sus-tained professionalismand outstanding technical support of the staffs of the OhioDepartment of Taxation,Ohio Department ofDevelopment, the OhioLegislative ServiceCommission and legisla-tive caucuses in eachchamber. Ohio’s citizensare fortunate to havesuch talented and dedi-cated public servantsworking on their behalf.

Members of the Ohio Business Roundtable


Is there any confirmation that the new tax structure is actually resultingin a further improvement in the cost of doing business?

The new tax law is being implemented over a five-year period. But there are early important signs it is having a positive effect on the Ohio business climate.

FIRST REASON TO BELIEVE — The Milken Institute, an independent third party organization, produces a Cost-of-Doing-Business Index (www.milkeninstitute.org). In 2007, Ohio’s overall ranking improved three places versus the last published report.

SECOND REASON TO BELIEVE — Another way to assess the impact is to look at howcompetitive Ohio is in new job creation. Ernst & Young compiles an annual assessmentof new job creation by state and reports it in The U.S. Investment Monitor publication. In 2006, Ohio ranked best in the Midwest and 4th overall nationally. Ohio accounted for5.9% of new job growth in America. This is an index of 103 versus 2005, and 136 versus2004, suggesting a positive impact of tax reform on job creation.

New Job Growth Trend

THIRD REASON TO BELIEVE — A third way of triangulating an answer is to look at the number of capital investment projects completed. Site Selection magazinereports these data annually and awards the Governor’s Cup to the state with the most completed projects. In both 2006 and 2007, Ohio won the prestigious Governor’sCup by leading the nation in the number of executed capital investment projects.

The above three independent indicators strongly suggest Ohio’s tax reform is having a positive impact on the state economy. More and more capital investors arelooking at Ohio as a great place to build a successful global business and enhanceshareholder value.

WIILINOH MI MN

% O

F U

.S. N

EW

JO

B C

RE

AT

ION

0

2004

1

2

3

4

5

6

7

2005 2006

30

The Ohio Business Roundtable is a partnership of the chief executiveofficers of the state’s major business enterprises. Established in 1992,the BRT was created in the belief that business leaders in a pluralisticsociety should have an active and effective role in the formulation and evaluation of public policy. The BRT’s mission is to apply theknowledge, experience and insight of its CEO members, working inpartnership with public leaders, to solve complex problems affectingOhio’s overall social and economic vitality. The principal strength of the BRT is the extent of participation of the CEOs of the memberfirms, working together on specific issues where their business experience can make a significant contribution in effecting innovativechange. In an effort to provide a broad base of information for thedecision-making process, membership is diversified by industry sector and geographic location. Thus the CEOs, representing some100 companies in all fields, can present a cross-section of thinking on critical statewide issues. The Ohio Business Roundtable is highlyselective in the issues it addresses; a principal criterion is the impacton global competitiveness. The chief executives are committed toadvocating public policies that foster vigorous, sustained economicgrowth and an improved standard of living for all Ohioans.

AK Steel – James L. WainscottAmerican Electric Power – Michael G. Morris*

American Financial Corporation – Carl H. LindnerThe Andersons – Richard P. Anderson*

AT & T Ohio – Thomas C. PeltoAultman Health Foundation – Ed Roth

Battelle – Carl F. Kohrt*Bricker & Eckler LLP – Rich Simpson

Calfee, Halter & Griswold – Brent BallardCardinal Health – R. Kerry Clark

The Castellini Group of Companies – Robert Castellini*Catholic Health Partners – Michael ConnellyChemical Abstracts Service – Robert Massie

Cincinnati Bell – Phillip Cox*Cincinnati Children’s Hospital – James M. Anderson

Cintas Corporation – Scott D. FarmerCleveland Clinic Foundation – Delos M. Cosgrove, M.D.*

Columbia Gas of Ohio – John W. Partridge, Jr.Convergys Corporation – David Dougherty

Deloitte & Touche LLP – John McEwanDiebold, Incorporated – Thomas SwidarskiDispatch Printing Company – John F. Wolfe

Dominion Resources – Bruce KlinkDuke Energy – Sandra Meyer

Eaton Corporation – Alexander M. CutlerErnst & Young LLP – Michael VentlingFifth Third Bancorp – Kevin T. Kabat*

FirstEnergy Corp. – Anthony J. Alexander*Forest City Enterprises – Albert Ratner

Frisch’s Restaurants – Craig F. MaierGeneral Electric – Scott Donnelly

The Goodyear Tire & Rubber Company – Robert KeeganHonda of America Mfg., Inc. –Tsuneo Tanai

Huntington Bancshares Incorporated – Thomas E. HoaglinThe J. M. Smucker Company – Timothy P. Smucker

Jones Day – Lyle Ganske KeyCorp – Henry L. Meyer III*

Kokosing Construction Co., Inc. – Wm. Brian BurgettKPMG, LLP – Phillip R. Smith

LexisNexis – Kurt SanfordLimited Brands – Leslie H. Wexner*

Longaberger Company – Tami LongabergerMacy’s – Thomas G. Cody

McKinsey & Company – John WarnerMedical Mutual of Ohio – Kent W. Clapp

Milacron, Inc. – Ronald BrownThe Milenthal Group – David Milenthal

National City – Peter Raskind and Michael GonsiorowskiNationwide – Jerry Jurgensen*

NetJets – Daniel H. RosenthalNew Albany Company – John W. Kessler

OhioHealth – David P. BlomThe Ohio State University – E. Gordon Gee

Owens Corning – Michael Thaman*PNC Bank, N.A. – S. Kay Geiger

PolyOne Corporation – Steven NewlinPorter, Wright, Morris and Arthur – Robert W. Trafford

Premier Health Partners – Tom BreitenbachPricewaterhouseCoopers – Michael Petrecca

The Procter & Gamble Company – A.G. LafleyRockwell Automation – Steve Eisenbrown

RPM International, Inc. – Frank C. Sullivan*Scotts Miracle-Gro – James Hagedorn

Sherwin-Williams – Christopher ConnorSoin International – Rajesh K. Soin

Squire Sanders & Dempsey –Thomas StantonState Farm Insurance – Ed Rust and Paul Smith

STERIS Corporation – Walter RoseboroughTime Warner –Terry O’Connell

The Timken Company – Ward J. Timken, Jr.*TriHealth – John Prout

University Hospitals Health System – Thomas ZentyVorys, Sater, Seymour and Pease – Russell M. Gertmenian

Western & Southern Financial Group – John F. Barrett*

* Member of the Executive Committee

Ohio Business Roundtable, Inc.

Michael G. Morris, ChairmanJerry Jurgensen, Vice ChairmanJohn F. Barrett, Immediate Past ChairmanRichard A. Stoff, President

41 South High StreetColumbus, Ohio 43215(614) 469-1044

Copyright © June 2008, all rights reserved. This is a reprint and not an original. The Ohio BusinessRoundtable grants permission to reprint this publication provided (1) this disclaimer is prominently displayed on the back cover of all reproductions; and (2) the original content is not modified.